Financial Modelling

Feasibility
1. Benefits
  1. Clarify modelobjectives
    1. Identify boundaries- what it will and will not do
      1. Estimate time and resources
        understand main risks
        broad data requirements
        confirm whether model should be built
2. Problems Avoided
  1. Expectations differ
    1. model is rushed
      1. model does not mitigate risks
        solution is suboptimal
        model gets abandoned
3. Should include
  1. Purpose and objectives
    1. users of the model
      1. initail thoughts on how the model will work
        level of risk
        time and resources needed
        signed agreement
        Payback period
Analyse
1. Benefits
  1. Ensures Model Solves correct problem
    1. Forces developer and sponsor to think through problem
      1. common understanding
        makes testing easier and effective
        new undertanding of problem and more valuable outcome
2. Problems Avoided
  1. Building takes much longer
    1. frequent chnges introduce errors
      1. design may be haphazard
        other stages take longer
        model is discarded
3. Occam's Razor
4. Define Model Relationships and Reports
  1. Bubble Diagrams
    1. Non descriptive
  2. Who will use reports
  3. Calculation Tables
    1. Useful
    2. Descriptive
    3. Take a long time to make
Design
1. Benefits
  1. Built in Correct software
    1. Calculations are easy to understand
      1. Appearance is usser friendly and professional
2. Problems Avoided
  1. Difficult to use
    1. Difficult to navigate
      1. Difficult to develop or amend
        Likey to contain errors
        Hard to test
3. Choosing the Software
  1. Spreadsheets
    1. lots of numerical manipulation
      1. user interface
        copmplex report structures
  2. databases
    1. data validation
      1. lots of data little calculation
4. Golden Rules of Design
  1. One formula per row (column)
    1. Refer to left and above
      1. Use multiple worksheets appropirately
        Separate inputs, calculations, results
        Consistent use of columns
        Include documentation sheet
Maintain
1. Model Must stand alone
  1. Developer may change jobs
    1. Model is not misused
2. Back Up procedures
  1. Copy saved off site
3. Control Change
  1. Change request forms
    1. Only one person makes changes
      1. Version number naming rules
Implement
1. User manuals and training
  1. Communicates how to use model
2. Sensitivity analaysis
  1. Fluctuations in inputs affect outputs
    1. Monte Carlo 95% degree of certainty
      1. Include Exec. summary
        Recommendations and next steps
3. Scenarios
  1. Different Stories
    1. Possible Inputs
    2. Run trees
      1. Branches of changs with a summary report
    3. Comparator
      1. Run A, Run B, Run A-Run B
Test
1. Analysis
  1. Review Model reports
    1. Review calculation Tables
      1. Examine data inputs
2. Unique Formulae
  1. Identify Unique Formulae
    1. Check unique formulae analysis
      1. Check referencing
3. Numeric
  1. Check results to analysis example
    1. Idenpendently calculate results for seecond time
      1. Reconcile against exsisting report
4. Robustness
  1. Perform boundary test with sensible inputs
    1. Check zero, negative and large inputs
5. Macro
  1. check macro buttons and hyperlinks
    1. try to brak macros with reasonable tests
      1. macros have error traps?

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Financial Modelling

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	Created by Emma Burrows about 10 years ago